Exhibit 99.1
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
August 31,
1997
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ASSETS (Unaudited)
Cash and cash equivalents......................................... $ 5,603,023
Accounts receivable, net.......................................... 9,636,912
Notes receivable from contracts, current portion.................. 663,807
Prepaid expenses and other current assets......................... 1,469,214
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Total current assets...................................... 17,372,956
Fixed assets, net................................................. 7,424,135
Notes receivable from contracts, excluding current portion........ 8,326,216
Franchise rights, net............................................. 5,171,327
Trade name, trademark and contract rights, net.................... 6,541,553
Goodwill and other intangible assets, net......................... 27,951,806
Deferred tax assets............................................... 2,968,058
Deposits and other assets......................................... 2,082,024
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Total assets.............................................. $ 77,838,075
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable.................................. $ 1,113,670
Current portion of capital leases................................. 226,069
Accounts payable and accrued expenses............................. 13,418,458
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Total current liabilities................................. 14,758,197
Notes payable, excluding current portion.......................... 1,469,302
Capital leases, excluding current portion......................... 955,336
Deferred rent and other long-term liabilities..................... 53,116
Deferred tax liabilities.......................................... 1,594,071
Deferred revenue.................................................. 13,721,483
Commitments and contingencies.....................................
Stockholders' equity:
Common stock, $.01 par value; 20,000,000 authorized shares;
7,564,512 shares issued and outstanding........................ 75,645
Additional paid-in capital..................................... 44,228,503
Retained earnings.............................................. 982,422
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Total stockholders' equity................................ 45,286,570
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Total liabilities and stockholders' equity................ $ 77,838,075
============
The accompanying notes are an integral part of these
supplemental consolidated financial statements.
1
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended August 31, Nine months ended August 31,
------------------------------- ------------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
Revenue, net........................................ $ 16,072,518 $ 22,932,463 $ 45,659,761 $ 57,217,364
Cost of revenue..................................... 10,600,231 15,358,731 30,281,404 38,022,538
------------ ------------ ------------ ------------
Gross profit................................... 5,472,287 7,573,732 15,378,357 19,194,826
Selling, general and administrative expenses........ 4,128,861 5,551,586 12,085,577 14,271,544
------------ ------------ ------------ ------------
Operating income............................... 1,343,426 2,022,146 3,292,780 4,923,282
Other income (expense):
Interest expense.................................. (470,728) (169,919) (1,445,561) (1,022,554)
Interest income................................... 55,223 111,142 109,402 170,397
Gain on sales of fixed assets..................... 82,830 38,993 245,489 179,471
------------ ------------ ------------ ------------
Income before provision for income taxes............ 1,010,751 2,002,362 2,202,110 4,250,596
Provision for income taxes.......................... 330,138 822,640 735,506 1,696,876
------------ ------------ ------------ ------------
Net income.......................................... $ 680,613 $ 1,179,722 $ 1,466,604 $ 2,553,720
============ ============ ============ ============
Pro forma earnings per common share................. $ 0.15 $ 0.48
============ ============
Pro forma weighted average common and common
equivalent shares outstanding...................... 7,928,679 5,588,404
============ ============
The accompanying notes are an integral part of these
supplemental consolidated financial statements.
2
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended August 31,
---------------------------------
1996 1997
------------ ------------
(Unaudited)
Cash flows from operating activities:
Net income......................................................... $ 1,466,604 $ 2,553,720
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and amortization of fixed assets................... 1,387,651 1,444,831
Amortization of intangible assets............................... 781,630 900,346
Gain on sales of fixed assets................................... (245,489) (179,471)
Provision for deferred taxes.................................... - (424,025)
Change in deferred revenue...................................... 772,581 860,543
Changes in operating assets and liabilities:
Accounts receivable........................................... 1,250,240 1,010,533
Notes receivable from contracts............................... (830,085) (1,170,305)
Prepaid expenses, deposits and other assets................... (733,619) (453,038)
Accounts payable and accrued expenses......................... (53,030) (1,675,064)
Deferred rent and other long-term liabilities................. (43,264) (58,165)
------------ ------------
Net cash provided by operating activities................... 3,753,219 2,809,905
------------ ------------
Cash flows from investing activities:
Proceeds from sales of fixed assets................................ 1,699,233 1,291,286
Purchases of fixed assets.......................................... (2,605,483) (3,177,135)
Acquisitions of chauffeured vehicle service companies.............. (1,248,585) (7,394,060)
------------ ------------
Net cash used in investing activities....................... (2,154,835) (9,279,909)
------------ ------------
Cash flow from financing activities:
Proceeds of sales of notes receivable from independent operators... 404,307 -
Principal payments under capital lease obligations................. (206,989) (185,574)
Payments of notes payable.......................................... (3,257,478) (17,838,591)
Proceeds from notes payable........................................ 2,320,541 450,000
Issuance of common stock........................................... - 30,897,290
Common stock dividends............................................. (28,302) (101,857)
Preferred stock dividends.......................................... (900) -
Payments under Recapitalization Plan............................... - (4,015,952)
Redemption of Series E preferred stock............................. (137,500) -
------------ ------------
Net cash provided by (used in) financing activities......... (906,321) 9,205,316
------------ ------------
Net increase in cash and cash equivalents............................ 692,063 2,735,312
Cash and cash equivalents at beginning of period..................... 1,615,711 2,867,711
------------ ------------
Cash and cash equivalents at end of period........................... $ 2,307,774 $ 5,603,023
============ ============
The accompanying notes are an integral part of these
supplemental consolidated financial statements.
3
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. Background and organization
General
Carey International, Inc. (the "Company") provides services through a
worldwide network of owned and operated companies, licensees and affiliates
serving 420 cities in 65 countries. The Company owns and operates service
providers in the form of wholly-owned subsidiaries in: New York (Carey
Limousine N.Y., Inc. and Manhattan International Limousine Network, Ltd.),
San Francisco (Carey Limousine SF, Inc.), Los Angeles (Carey Limousine L.A.,
Inc.), Indianapolis (Indy Connection Limousine, Inc., See Note 2),
Washington, D.C. (Carey Limousine D.C., Inc.), South Florida (Carey Limousine
Florida, Inc.), Philadelphia (Carey Limousine Corporation, Inc.) and London,
England (Carey UK Limited). In addition, the Company licenses the "Carey"
name, and provides central reservations, billing, and sales and marketing
services to its licensees. The Company's worldwide network includes
affiliates in locations in which the Company has neither owned and operated
locations nor licensees. The Company provides central reservations and
billing services to such affiliates.
Acquisitions
The Company is engaged in a program of acquiring chauffeured vehicle
service businesses. Such acquisitions include unrelated chauffeured vehicle
service businesses, some of which may be in cities in which the Company has
owned and operated service providers, licensees operating under the Carey
name and trademark and affiliates of the Company. In the first quarter of
1996, the Company acquired a chauffeured vehicle service company operating in
London, England. As more fully discussed in Note 3, on June 2, 1997 the
Company acquired Manhattan International Limousine Network Ltd. and an
affiliated company ("Manhattan Limousine").
Initial public offering and reverse stock split
In connection with the Company's initial public offering ("IPO") completed
June 2, 1997, the Company's Board of Directors authorized a one for 2.3255
reverse stock split of the outstanding shares of the Company's common stock.
All references to common stock, options, warrants and per share data have
been restated to give effect to the reverse stock split. On February 25,
1997, the Board of Directors also authorized a Recapitalization Plan (the
"Recapitalization"), which is more fully described in Note 7.
2. Basis of presentation
The supplemental consolidated financial statements of Carey International,
Inc. and subsidiaries have been prepared to give retroactive effect to the
merger of Indy Connection Limousines, Inc. and subsidiary (Indy Connection)
with and into Carey International, Inc. and subsidiaries on October 31, 1997.
Generally accepted accounting principles proscribe giving effect to a
consummated business combination accounted for by the pooling-of-interests
method in financial statements that do not include the date of consummation.
These supplemental financial statements do not extend through the date of
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CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
consummation; however, they will become the historical consolidated financial
statements of Carey International, Inc. and subsidiaries after financial
statements covering the date of consummation of the business combination are
issued.
The accompanying consolidated financial statements and these notes do not
include all of the disclosures included in the Company's supplemental audited
consolidated financial statements for the years ended November 30, 1994, 1995
and 1996, which should be read in conjunction with these financial
statements. For further information, such as the significant accounting
policies followed by the Company, refer to the notes to the Company's
supplemental consolidated financial statements.
The supplemental consolidated financial statements included herein have not
been audited. However, in the opinion of management, the supplemental
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
results for the periods reflected. The results for these periods are not
necessarily indicative of the results for the full fiscal year.
Pro forma net income per common share
Consistent with Securities and Exchange Commission Staff Accounting
Bulletin ("SAB") No. 1B-2, the Company has recalculated historical weighted
average common shares outstanding and net income per common share to give
effect to the Recapitalization (see Note 7). The recalculated pro forma net
income per common share is determined by (i) adjusting net income available
to common shareholders to reflect the elimination of interest expense, net of
taxes, resulting from the conversion of a portion of the subordinated debt
into common stock and (ii) increasing the weighted average common shares
outstanding by the number of common shares resulting from the conversion of
subordinated debt and the partial conversion of the Series A Preferred Stock.
3. Acquisitions
In February 1996, the Company acquired the common stock of a chauffeured
vehicle service company in London, England for approximately $1,500,000.
Additional contingent consideration of up to approximately $1,000,000 may be
payable for the two-year period ending February 28, 1998 based on the level
of revenues referred to the acquired company by the seller. As of August 31,
1997, the Company has paid approximately $550,000 in such contingent
consideration in connection with the London acquisition. In September 1997,
the Company made an additional contingent consideration payment of
approximately $280,000.
In June 1997, the Company acquired the common stock of Manhattan Limousine
for $14,200,000. The purchase price for the acquisition was composed of
$4,740,00 in debt to the sellers, a cash payment of $7,060,000 and the
issuance of 228,571 shares of common stock. The debt to the sellers was paid
off on July 31, 1997.
5
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In the periods ended August 31, 1996 and 1997, the following acquisition
activity was recorded by the Company:
Nine months ended August 31,
--------------------------------
1996 1997
------------ ------------
Fair value of net assets and liabilities acquired:
Receivables and other assets $ 632,554 $ 159,575
Notes receivable from contracts - 6,647,766
Fixed assets 928,377 1,498,444
Franchise rights 50,065 -
Goodwill and other tangibles 160,040 21,046,816
Trade payables and accrued expenses (522,451) (4,353,898)
Notes payable - (8,524,850)
Deferred revenue - (6,679,793)
------------ ------------
Fair value of assets and liabilities acquired $ 1,248,585 $ 9,794,060
============ ============
Issuance of stock (228,571 shares of common stock) $ - $ 2,400,000
============ ============
Cash payments (net of $223,695 cash acquired in 1996) $ 1,248,585 $ 7,394,060
============ ============
At the time of its acquisition by the Company, Manhattan Limousine was
subject to guarantees of certain independent operator leases with third party
finance companies of approximately $2.1 million.
4. Senior credit facility
With effect on August 15, 1997, the Company entered into a senior credit
facility with three banks consisting of a secured revolving line of credit of
$25.0 million (the "Facility"). The Facility, which may be used for
acquisitions and working capital, is collateralized by the assets of the
Company and its domestic operating subsidiaries and by a pledge of the stock
of its international subsidiary. The Facility also provides availability for
the issuance of letters of credit. Loans made under the revolving line of
credit bear interest at the Company's option at either the bank's prime
lending rate or 2.0% above the LIBOR rate. Commitment fees equal to 0.375%
per annum are payable on the unused portion of the revolving line of credit.
On the second anniversary of the Facility, outstanding balances under the
Facility will convert to a five-year term loan, which will bear interest
either at a fixed rate (subject to availability) or at a variable LIBOR or
prime-based rate with adjustments determined based on the Company's earnings.
The terms of the Facility (i) prohibit the payment of dividends by the
Company, (ii) with certain exceptions, prevent the Company from incurring or
assuming other indebtedness that is not subordinated to borrowings under the
Facility and (iii) require the Company to comply with certain financial
covenants.
6
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Commitments and contingencies
In the normal course of business, the Company is subject to various legal
actions which are not material to the financial condition, results of
operations or cash flows of the Company.
The Company, certain of the Company's subsidiaries and certain officers and
directors of the Company were named in a civil action filed on May 15, 1996
in the United States District Court for the Eastern District of Pennsylvania
entitled "Felix v. Carey International, Inc., et. al." The plaintiff's
complaint, which purports to be a class action, alleges that the plaintiff
and others similarly situated suffered monetary damages as a result of
misrepresentations by the various defendants in their use of a surface
transportation billing charge (the "STC"). The plaintiff seeks damages in
excess of $1 million on behalf of the class for each of the counts in the
complaint including fraud, negligent misrepresentation and violations of the
Racketeer Influenced and Corrupt Organizations law of 1970, which permits the
recovery of treble damages and attorneys' fees. The proposed class has
received preliminary certification by the court. The Company is indemnifying
and defending its officers and directors who were named as defendants in the
case, subject to conditions imposed by applicable law.
The Company has reached a tentative settlement with the plaintiff and
plaintiff's counsel. The settlement calls for the Company to deposit $500,000
into a settlement fund and provide a $450,000 letter of credit for a class
consisting of all persons who paid the STC during the period from May 15,
1992 through March 15, 1997. As a condition of the final settlement, the
Company will change its disclosure concerning the STC, and each class member
showing proper authentication of a claim shall be entitled to receive either
(i) cash totaling 10% of the STC paid during the period described above or
(ii) a nontransferable credit to be applied toward future use of the
Company's services in an amount equal to 30% of such STC.
The Company does not believe the settlement described above will have a
material adverse effect on its business, financial condition, results of
operations and cash flows.
6. Net income per common share
Net income per common share, on a historical basis, is as follows:
Three months ended Nine months ended
August 31, August 31,
---------------------------- ----------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
Net income available to common shareholders $ 680,613 $ 1,179,722 $ 1,465,704 $ 2,553,720
============ ============ ============ ============
Weighted average common and common equivalent
shares outstanding 3,124,314 7,905,034 3,124,314 4,858,013
============ ============ ============ ============
Net income per common share $ 0.22 $ 0.15 $ 0.47 $ 0.53
============ ============ ============ ============
7
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Common equivalent shares are included in the per share calculations where
the effect of their inclusion would be dilutive. Common equivalent shares
consist of Series B, F and G preferred stock as well as substantially all of
the subordinated debt of the Company and the assumed exercise of vested
outstanding stock options and warrants. Pursuant to SAB No. 83, the common
equivalent shares issued by the Company during the twelve months preceding
the effective date of the Registration Statement relating to the IPO, using
the treasury stock method and the IPO price of $10.50 per share, have been
included in the calculation of net income per common share.
7. Recapitalization
On February 25, 1997, the Board of Directors authorized a Recapitalization,
which was implemented on June 2, 1997, coincident with the closing of the
IPO. Under the Recapitalization, the $2,000,000 subordinated convertible note
dated September 1, 1991 and the $3,780,000 subordinated note dated July 30,
1992 were converted into 1,046,559 shares of common stock and the remaining
principal balance of $912,454 was repaid. The Series A preferred stock was
converted, in part, into 86,003 shares of common stock and redeemed in part
for $2,103,500. All of the Series F preferred stock and 3,000 shares of the
Series G preferred stock was redeemed for $1,000,000.
The remaining preferred stock has been converted into 1,427,527 shares of
common stock. As a result of the Recapitalization, preferred stock with a
liquidation preference of $11,154,900 and subordinated debt with a principal
amount of $5,780,000 has been converted in part into 2,560,071 shares of
common stock and repaid or redeemed in part for $4,015,952 in cash, with the
cash portion paid out of the proceeds of the IPO.
8